Can a company face securities fraud liability for describing a lawsuit brought against it as “meritless” if the plaintiff goes on to win a big verdict? In Grobler v. Neovasc, Inc., 2016 WL 6897760 (D. Mass. Nov. 22, 2016), Neovasc was hit with a $70 million verdict in a case alleging that it stole intellectual property, its stock price declined by 75 percent when the verdict was announced, and investors brought a securities class action. The investors alleged that Neovasc had lied when it repeatedly told them that the intellectual property case was “without merit” and “baseless.”
The district court concluded that the PSLRA’s safe harbor for forward-looking statements applied to Neovasc’s statements. First, the statements “were predictions about the future outcome of the pending litigation, and could only be invalidated by reference to the ultimate outcome of the case.” Second, the statements were accompanied by meaningful cautionary language that “included detailed and specific warnings about the possibility and the consequences of losing” the intellectual property case. Finally, whether Neovasc actually believed that it was likely to lose the intellectual property case was irrelevant because “examining an alleged present belief apart from the forward-looking aspects of the statement requires an inquiry into the state of mind of the defendant—something that the first prong of the safe harbor provision is written to ignore.” Accordingly, the court found that the alleged false statements were inactionable.
Holding: Motion to dismiss granted with prejudice.
The 10b-5 Daily 